The Role of Share Valuation in Shareholder Dispute Cases

Private and Confidential

17 June 2021

The Role of Share Valuation in Shareholder Dispute Cases –

Practical Aspects of Share Valuation in Dispute Circumstances

Private and Confidential 2

CONTENTS

01Introduction

02Valuation Methods Often Used in Dispute Circumstances

03Valuation in Business Transactions vs Valuation in Dispute Circumstances

04Common Constraints

05Key Takeaways

06How can BW help?

07Speaker Profile

01INTRODUCTION


OUR APPROACH

Borrelli Walsh, a Kroll Business, is Asia’s leading specialist advisory firm with a dedicated team of approximately 140

professionals across offices in Beijing, British Virgin Islands, Cayman Islands, Hong Kong, Jakarta, London, New Delhi,

Shanghai and Singapore.

WE FOCUS EXCLUSIVELY ON:

• Insolvency (Liquidations, Receiverships and Individual Bankruptcies)

• Forensics (Financial Investigations, Forensic Accounting, Expert Witness, Matrimonial & Probate)

• Advisory (Directorship and Funds & Asset Management)

• Restructuring

Our expert team has an established reputation for hard work, tenacity and integrity. We have a proven track record of

delivering practical and efficient solutions in our chosen areas in Asia Pacific, the Caribbean and internationally.

Our Managing Directors and Directors have real hands on involvement in all projects.

Key clients include private equity and special situations funds, bondholders, local and international banks, lawyers, listed and

private companies, regulators and industry bodies, government departments and family groups.


OUR APPROACH

Borrelli Walsh has a strong reputation for delivering results to complex problems through hard work, innovative and practical

solutions throughout the Asia Pacific region and internationally.

We work with our clients and other stakeholders in small and experienced groups and focus on providing strategic direction

and momentum. Concurrently, we work to resolve financial and operational problems, thereby enhancing and realizing value

in a low risk and well considered environment.

We have established relationships with well experienced and like-minded international contacts in a broad range of

professional and commercial disciplines and industries.

Of paramount importance is our discretion and our loyalty to our clients.


FORENSICS

• Litigation support and expert testimony

• Computer forensics

• Investigating service provider negligence, including auditors and underwriters

• Asset tracing, retrieval and realization

• Regulatory and money laundering investigations

• Anti-bribery and corruption investigations and risk assessment

• Corporate internal investigations

• Fraud risk management framework review

• Matrimonial, Trust & Probate

INSOLVENCY

• Court and Private Receiverships

• Provisional Liquidations

• Compulsory, Creditors and Members Voluntary Liquidations

• Bankruptcy and Individual Voluntary Arrangements

ADVISORY

• Corporate Advisory

• Executive and non-executive directorships

• PRC Legal Representative appointments

• Pre-investment / pre-finance due diligence of entities and assets

• Sales of entities and assets

• Funds and Asset Management

• Replacement Management and General Partner

• Specialist services for management and divestiture of illiquid or distressed assets

• Realisation alternatives and strategies

• Redemptions, valuation and pricing, illiquid investments

OUR SERVICES

RESTRUCTURING

• Crisis & interim management (Chief Restructuring Officer) – Executive Appointments

• Independent Financial Advisors and Monitoring Accountant

• Formal and informal restructurings and workouts

• Cash and working capital management

• Schemes of Arrangement

• Singapore Judicial Management

• Indonesian Suspension of Debt Payment Obligation (“PKPU”)

• Chapter 15 of the US Bankruptcy Code


LOCATIONSRestructuring Advisory

In November 2020, Kroll, a global leader in risk mitigation, investigations, compliance, cyber resilience, security and incident

response solutions, acquired Borrelli Walsh. Kroll has nearly 4,000 professionals in 25 countries around the world. The

combination of the businesses strengthens the firm’s restructuring offerings for clients in Asia, the Caribbean and around the

world. With the addition of Borrelli Walsh, the firm has nearly 450 restructuring staff in 14 different jurisdictions.

400+ RESTRUCTURING PROFESSIONALS

21 OFFICES

4 CONTINENTS

1 FIRM

British Virgin Islands

Cayman Islands

Beijing

Hong Kong

Jakarta

Mumbai

Barcelona

Birmingham

Dubai

Dublin

Gibraltar

EUROPE AND MIDDLE EAST ASIA PACIFICTHE AMERICAS

Los Angeles

New York

London

Longford

Madrid

Manchester

New Delhi

Shanghai

Singapore

Sydney

02Valuation Methods Often Used in Dispute Circumstances


VALUATION METHODS OFTEN USED IN DISPUTE CIRCUMSTANCES

VALUATION METHOD

A BRIEF INTRODUCTION OFTEN USED IN DISPUTE CIRCUMSTANCES?

Market Approach – such as EBITDA Multiple Method

• Assessing the value of the company by reference to the price,earnings and other performance indicators of comparablecompanies for which there is sufficient available information.This may either be by reference to peer listed companies or byreference to recent transactions in relation to equivalentcompanies.

• Yes, as performance indicators are usually readily available.

• But a reliable valuation using this method highly depends on:

• identifying suitable Comparable Companies;

• determining what adjustments and discounts need to be

made for the differences between the subject company and

the Comparable Companies; and

• identifying a suitable valuation multiple (such as

price/earnings multiple and EBITDA multiple).

Net Asset Value (NAV)

• Estimated value of assets after deducting its liabilities. • Yes, when:

• the company holds significant tangible and liquid assets (such asmarketable securities and real estate properties); and

• a relatively reliable (and readily available) financial statements ofthe company are available.

Companies (or shares of these companies) are typically valued by using one or more of the following valuation methods:


VALUATION METHODS OFTEN USED IN DISPUTE CIRCUMSTANCES

VALUATION METHOD A BRIEF INTRODUCTION OFTEN USED IN DISPUTE CIRCUMSTANCES?

Quoted Price • Estimated value by reference to the price of a company’sshares quoted on a stock exchange or any other markets.

• Yes, when valuing shares of listed companies being traded

actively in the relevant stock market.

Discounted Cash Flow (DCF)

• Estimated value by reference to expected future cashflow discounted for risk and time value of money.

• Not so often (with the exception of some special industriessuch as utility and energy), as:

• reliable cash flow forecasts are not usually available; and

• comparable financial and market data is required todetermine an appropriate discount rate for risk and the timevalue of money.

Companies (or shares of these companies) are typically valued by using one or more of the following valuation methods.

03Valuation in Business Transactions vs Valuation in Dispute Circumstances


VALUATION IN BUSINESS TRANSACTIONS VS VALUATION IN DISPUTE CIRCUMSTANCES

DIFFERENCES VALUATION IN BUSINESS TRANSACTIONS VALUATION IN DISPUTE CIRCUMSTANCES

Context • Sale and purchase transaction.

• M&A.

• Audit.

• Shareholder dispute.

• Divorce proceedings.

• Other business disputes.

Readers • Buyer and seller in the transaction and theirshareholders.

• Stakeholders of the company.

• Lawyers representing the parties in the dispute.

• The judge in the associated legal proceedings.

Valuation Date • A key date shortly prior to the completion of thetransaction.

• Financial year end.

• The date of an event or transaction affecting the parties indispute.

• Date of petition.

• A date closer to the trial of the legal proceedings or the date ofthe judgment.

Valuations in business transactions and those in dispute circumstances are substantially different from each other in context,

readers, valuation dates, primary purpose and form.



DIFFERENCES VALUATION IN BUSINESS TRANSACTIONS VALUATION IN DISPUTE CIRCUMSTANCES

Primary Purpose • To facilitate the completion of the transaction.

• To discharge directors’ duties.

• To provide assistance to the Court for the purposes of resolvingthe dispute such as by determining a quantum to be paid by 1party to another.

• To answer questions specified by the Court including bycommenting on the valuation reports prepared by a valuer for(disputed) business transactions.

• The expert may need to be cross examined at the trial.

Usual Form • A relatively more standard template.

• May not contain detailed analysis or explanation.

• Usually not required to disclose supporting documents.

• May not be a substantial document.

• Tailor made to deal with the matters relevant to the dispute.

• Requires detailed analysis and explanation in respect of theapproach adopted, adjustments or discounts made and theconclusion.

• Supporting documents are required to substantiate the analysis,adjustments and conclusion.

• Usually a more detailed and substantial document.

Valuations in business transactions and those in dispute circumstances are substantially different from each other in context,

readers, valuation dates, primary purpose and form.



A Case Study

Please contact us if you wish to discuss the details of the case study.

04Common Constraints


• Whether a valuation is reliable highly depends on whether an appropriate valuation method has been

adopted.

• More often than not, it is chosen by reference to the information available to the valuer, and this is highly

influenced by when the “Valuation Date” is:

▪ if it is the date of an event or transaction which happened some time ago (not a date close to present

as in valuation for a business transaction), some information and documents may no longer be

available now; and

▪ some more suitable valuation methods may not be applicable because of lacking necessary

information and documents.

• More assumptions and adjustments will therefore likely be required when undertaking the valuation and

this may be subject to dispute and criticism by the opposing party.

• Any solutions?

16

COMMON CONSTRAINTS FACING VALUATIONS IN DISPUTE CIRCUMSTANCES


• Possible solutions:

▪ Trying to agree with the opposing party a list of documents to be provided to and the assumptions to

be made by the valuation experts – Experts representing the parties respectively will undertake the

valuation on the basis of the same documents and assumptions, hopefully narrow down the disparity

between the experts.

▪ Appointing a Single Joint Expert acceptable to all parties in dispute – the parties will usually be

abided by the Single Joint Expert’s opinions.

• Whether the valuation prepared by an expert is reliable still highly depends on his experience – research,

analysis, adjustments and supporting literature.

17

COMMON CONSTRAINTS FACING VALUATIONS IN DISPUTE CIRCUMSTANCES

05Key Takeaways


• Valuations in dispute circumstances require more detailed analysis, explanations and supporting literature

(than valuations in business transactions).

• Without these details and supporting literature, the valuation would be readily criticised by an opposing

expert and/or may not be helpful to the Court.

• In circumstances where information and documents are limited, the expert’s experience in elaborating his

research, analysis and identifying relevant supporting literature is very important – a valuer who does not

have experience in preparing expert report and/or being an expert witness may not understand such

importance.

• When you need a valuation in dispute circumstances – choose an expert with expert witness experience

and practical experience in business and transactions.

19

KEY TAKEAWAYS

06How can BW help?


How can we help?

We have substantial experience in providing expert reports and giving expert evidence in court and arbitration – APAC and

other jurisdictions.

Our strong business experience (from insolvency and restructuring cases) enables us to supplement our analysis and opinions

with real life examples and/or assist our clients in developing strategy in dealing with dispute circumstances:

• Providing Expert Reports and Giving Expert Evidence – preparing expert reports in dispute circumstances for

determining valuation and business losses, providing opinions on business transactions and/or answering questions

specified by the Court.

• Independent Financial Advisor – advising clients with a “hands on” approach to:

▪ consider the information and documents disclosed by the opposing parties and set out our observations;

▪ review and comment on expert reports and other witness statements; and

▪ work with clients’ legal advisors to develop a strategy and steps to deal with all possible claims to be issued by the

opposing parties.

21

HOW CAN BW HELP?

07SPEAKER PROFILE


PROFESSIONAL HISTORY

QUALIFICATIONS

Anson has over 15 years of experience in corporate and individual insolvency, receiverships, schemes of arrangement,financial review and investigations across numerous jurisdictions including Hong Kong, PRC, Singapore, Cayman Islandsand BVI.

Anson’s recent work includes investigating, locating and securing hidden assets, investigating and litigating fraudulenttransactions and payments in liquidation and bankruptcy, undertaking independent forensic investigations in respect ofsubstantial suspicious payments and irregular transactions and solvency analysis in legal proceedings, reviewing financialdocuments to undertake analysis and valuations in contested divorce proceedings and shareholder disputes.

Anson has worked in our BVI office including with securing and realising assets of hedge funds during the 2008 GlobalFinancial Crisis and taking control of BVI companies in receivership with international assets.

23

• Registered Appointment Taker with the Official Receiver's Office in Hong Kong

• Specialist Designation in Insolvency, SD (Insolvency), awarded by the Hong Kong Institute of Certified Public Accountants

• Certified Public Accountant, the Hong Kong Institute of Certified Public Accountants

• Chartered Accountant, the Institute of Chartered Accountants in England and Wales

• Member of the Restructuring and Insolvency Faculty of the Hong Kong Institute of Certified Public Accountants

• Member of the International Women's Insolvency and Restructuring Confederation

• Postgraduate Diploma in Professional Accounting, The Hong Kong Polytechnic University

• Bachelor of Economics and Finance, The University of Hong Kong

ANSON LIDirector – Hong Kong

CredentialsAppendix


RELEVANT EXPERIENCE

Job Industry/Location Work

Confidential Shareholder Dispute / Restaurant

Hong Kong

Appointed Expert in a shareholder dispute to prepare an account of profits of two popularJapanese-sushi restaurant groups comprising of 30 restaurants. The shareholders of the firstJapanese-sushi restaurant brought a claim against the sole director for breach of fiduciaryduty following his establishment and operation of other competing restaurants under thesame trademark. Our work includes the review of books and records to assess theircompleteness and truthfulness, the group structure and the business operation andmanagement of the two restaurant groups to account for the loss of profits of the firstrestaurant.

Project Quartz -Restaurant Group

Litigation Support / Restaurant

Cayman Islands

Independent expert report in connection with a dispute between a Franchisee andFranchisor that the Franchisee was induced to enter the Franchise Agreement bymisrepresentations that the restaurant operations of the franchisees in many other locationswere loss making/unprofitable if run in accordance with the Franchise Agreement and failedto disclose this to prior to the signing of the contract.

Confidential Shareholder dispute / F&B

Hong Kong

Single joint expert work to value a company which is a major supplier of several food chainstores in Hong Kong. As a result of ongoing shareholder dispute, a petition to wind-up thecompany was filed by one of its shareholders. The Court ordered that both parties file ajoint expert report to value the company as if the company is sold as going concern. Wehave identified two appropriate valuation methods on the basis of information available tous for assessing the company’s value and submit a single joint expert report for the parties’and the Court’s consideration.


RELEVANT EXPERIENCE


Confidential Shareholder Dispute / Garment Trading

Hong Kong, PRC

Appointed Expert to critically review a valuation report prepared by a Single Joint Expert onthe value of two garments trading companies at a certain point in time. We identified animportant and material defect in Single Joint Expert’s valuation. We then considereddifferent valuation methodologies and determined key variables and thereafter establishedour own valuation of the companies by reference to profit forecast and future prospectusing a market comparable valuation approach.

Confidential Shareholder Dispute / Garment

BVI, Cayman

Voluntary Liquidators of a Cayman Islands registered company with BVI subsidiariescontrolling one of the largest government business in the world as a result of a shareholderdispute. We were successful in negotiating a settlement of the family dispute whilemaintaining business operation.

Confidential Shareholder Dispute / Garment manufacturing and retail

Hong Kong

Appointed chairman and sole director of a Hong Kong Holding Company followingresignation of the entire board during a shareholder dispute. Assumed full operationalresponsibility for international business. Facilitated regular monitoring and reportingrequired to and between key stakeholders. Controlled and facilitated access to informationand specific due diligence to assist dispute resolution process.


RELEVANT EXPERIENCE


Confidential Shareholder Dispute / Marketing

PRC, USA

Nominated as non-executive director by Cayman Court of an integrated multi-platformmarketing company to stabilise the business and operations of the company and facilitatethe resolution of a shareholder dispute. The company is headquartered in Shanghai and itsAmerican Depository Shares are listed on the New York Stock Exchange. Our work includedmonitoring the business and operations of the company, considering and establishing longterm business strategies, and providing advice to management in respect of claims againstformer directors of the company for misconduct. We also chaired the Audit Committee ofthe company to oversee financial reporting process and disclosures, communicate withinternal and external auditors and provide recommendations, and enhance corporategovernance of the company.

Confidential Dispute / Education

Hong Kong

Appointed Independent Accountant by an education association to conduct a review of thebooks and records of one of its schools following allegations by the association’scollaborating partner. The Allegations were made following an internal audit of the school.Our work included collating the books and records, reviewing and analysing documentsrelated to the Audit and the Allegations, meeting with the management and accounting staffof the school, preparing a report of our findings and exploring the options available toresolve the dispute.


RELEVANT EXPERIENCE


Confidential Litigation Support / Manufacturing

PRC

Independent valuation of a carpet tackstrip manufacturing company in PRC and givingexpert witness evidence in arbitration proceedings. We considered different valuationmethodologies and determined key variables and thereafter estimated the value of thecompany by reference to profit forecast and future prospects.

Confidential Shareholder Dispute / Garment manufacturer

Hong Kong

Independent valuation of a uniform trading company. We considered different valuationmethodologies and determined the price of the shares in the company by reference to itsassets, liabilities, profitability and future prospects. Facilitated the buyout of the minorityshareholder’s interest by the major shareholder.

Confidential Shareholder Dispute / Metal Manufacturing

PRC

Appointed to a large metal manufacturer with a joint venture in PRC. Our work includedsubstantial investigations and tracing of fund flows in Hong Kong and PRC. Litigation wascommenced with the PRC investor of the JV for recovery of the Company’s assets.


RELEVANT EXPERIENCE


Confidential Post-Acquisition Dispute / Manufacturing

Hong Kong

Expert in arbitration proceedings to determine the value of a PRC-based business. Thedispute arose following the asset purchase of the business after it transpired that revenueswere far less than those represented in the business’ financial statements prior to closing.The buyer sought to recover damages through a HKIAC arbitration for loss of businessopportunities resulting from a breach of the asset purchase and sale and non-competeagreements. The report estimated the forecast revenue, profit and EBITDA of the businessfor each financial year in a five year period.

Confidential Shareholder Dispute / Manufacturing

Hong Kong

Independent financial review for a minority shareholder of a metallic electronic productsmanufacturing group including assessing the basis for the preparation of financialstatements of the group and establishing any accounting irregularities and violation of theCompanies Ordinance and accounting standards.

Confidential Litigation Support / Pharmaceuticals

USA, Canada, Puerto Rico, UK, Ireland, France, Italy

Independent financial advisor to pharmaceutical roll-up of eight contract development andmanufacturing organizations (CDMO) facilities acquired from seven different pharmaceuticalcompanies. Work included review and independent valuation of individual acquisitiontransactions, analysis of potential claims by company against third party sellers, majorcustomers and other significant parties, and assistance in negotiations with key creditorsand constituencies. Our work also included providing assistance to company and primaryequity owner in their litigation with dismissed management team, including review andanalysis of third-party consultant’s report, valuation and other financial analysis in supportof company’s litigation claims, counterclaims and defenses, and preparation of expertwitness report and availability for depositions and court expert testimony.


RELEVANT EXPERIENCE


Confidential Litigation Support / Insurance

PRC

Appointed by a leading PRC financial services provider to prepare a valuation report of aHong Kong insurance company which was placed under a bidding process for disposal by itsshareholders. Joint offer was made by 2 parties for acquisition of the target company andlater dispute arose between the parties. We have been instructed to research recentdevelopment of the relevant industry and market, review and analyse the due diligence andvaluation reports previously prepared for the transaction and adduce expert evidence inrespect of the value of the target company as at 3 relevant dates.

Matrimonial Proceedings

Litigation Support

Hong Kong

Appointed independent accountant by a businessman to ascertain the value of a companywhich is engaged in direct marketing of essential oil. The company was jointly owned byhim and his wife who intended to commence a divorce proceedings against him. Our workincluded understanding the relevant industry and market, reviewing and analysing thecompany’s latest financial statements and the underlying breakdown, valuing the companyand preparing a report setting out the associated methodologies, adjustments andvaluation. We have also attended a without prejudice meeting between the businessmanand his wife for the purposes of resolving the financial matters between them.

For more information, please contact:

About Borre l l i Walsh, A Krol l Bus iness

Borrelli Walsh, a Kroll Business, is Asia’s leading specialist restructuring advisory firm with a dedicated team of approximately 140 professionals across offices in Beijing, British Virgin Islands, Cayman Islands, Hong Kong, Jakarta, London, New Delhi, Shanghai and Singapore. For more information, visit www.borrelliwalsh.com.

About Krol l

Kroll is the world’s premier provider of services and digital products related to governance, risk and transparency. We work with clients across diverse sectors in the areas of valuation, expert services, investigations, cyber security, corporate finance, restructuring, legal and business solutions, data analytics and regulatory compliance. Our firm has nearly 5,000 professionals in 30 countries and territories around the world. For more information, visit www.kroll.com.

M&A advisory, capital raising and secondary market advisory services in the United States are provided by Duff & Phelps Securities, LLC. Member FINRA/SIPC. Pagemill Partners is a Division of Duff & Phelps Securities, LLC. M&A advisory, capital raising and secondary market advisory services in the United Kingdom are provided by Duff & Phelps Securities Ltd. (DPSL), which is authorized and regulated by the Financial Conduct Authority. Valuation Advisory Services in India are provided by Duff & Phelps India Private Limited under a category 1 merchant banker license issued by the Securities and Exchange Board of India.

© 2021 Duff & Phelps, LLC. All rights reserved. Kroll is a trade name for Duff & Phelps, LLC and its affiliates.

Private and Confidential June 23, 2021 31

Anson Li

Office Direct: +852 3761 3846

Mobile: +852 9125 5968

Email: [email protected]

http://www.borrelliwalsh.com/

http://www.kroll.com/

Documents

The Role of Share Valuation in Shareholder Dispute Cases